Coca Cola Capital Budget
Based on the projected Discounted Cash Flow (DCF) Analysis brought by wikiwealth, dddddddddddddddddddddddddddddddf d fasdf sadfljasd safkj slfjd l;ksjdf Capital budgeting (or investment appraisal) is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures.[1]
Many formal methods are used in capital budgeting, including the techniques such as
Accounting rate of return Net present value Profitability index Internal rate of return Modified internal rate of return Equivalent annuity
These methods use the incremental cash flows from each potential investment, or project. Techniques based on accounting earnings and accounting rules are sometimes used - though economists consider this to be improper - such as the accounting rate of return, and "return on investment." Simplified and hybrid methods are used as well, such as payback period and discounted payback period.
Contents
[hide]
1 Net present value 2 Internal rate of return 3 Equivalent annuity method 4 Real options 5 Ranked Projects 6 Funding Sources 7 External links and references
[edit] Net present value
Main article: Net present value
Each potential project's value should be estimated using a discounted cash flow (DCF) valuation, to find its net present value (NPV). (First applied to Corporate Finance by Joel Dean in 1951; see also Fisher separation theorem, John Burr Williams: Theory.) This valuation requires estimating the size and timing of all the incremental cash flows from the project. These future cash highest NPV(GE).
The NPV is greatly affected by the discount rate, so selecting the proper rate - sometimes called the hurdle rate - is critical to making the right decision. The hurdle rate is the minimum
Many formal methods are used in capital budgeting, including the techniques such as
Accounting rate of return Net present value Profitability index Internal rate of return Modified internal rate of return Equivalent annuity
These methods use the incremental cash flows from each potential investment, or project. Techniques based on accounting earnings and accounting rules are sometimes used - though economists consider this to be improper - such as the accounting rate of return, and "return on investment." Simplified and hybrid methods are used as well, such as payback period and discounted payback period.
Contents
[hide]
1 Net present value 2 Internal rate of return 3 Equivalent annuity method 4 Real options 5 Ranked Projects 6 Funding Sources 7 External links and references
[edit] Net present value
Main article: Net present value
Each potential project's value should be estimated using a discounted cash flow (DCF) valuation, to find its net present value (NPV). (First applied to Corporate Finance by Joel Dean in 1951; see also Fisher separation theorem, John Burr Williams: Theory.) This valuation requires estimating the size and timing of all the incremental cash flows from the project. These future cash highest NPV(GE).
The NPV is greatly affected by the discount rate, so selecting the proper rate - sometimes called the hurdle rate - is critical to making the right decision. The hurdle rate is the minimum